Hong Kong’s banks report bumper profits in 2023 as record interest rates swell margins, even as negative equity cases double

Pre-tax profit among the city’s retail banks increased by 62.1 per cent in aggregate last year, from 18.7 per cent in 2022, according to the HKMA’s data

The number of people in negative equity more than doubled to 25,163 cases at the end of December from 11,123 three months earlier, according to the HKMA

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A float decorated with dragons in a night parade in Hong Kong on January 23, 2012, celebrating the start of the Year of the Dragon in the lunar calendar. Photo: AP

Published: 3:39pm, 31 Jan 2024Updated: 5:50pm, 31 Jan 2024

Hong Kong’s banks reported their second straight year of bumper profits, as higher funding costs bloated their net interest margins, while a general recovery in post-pandemic business activity increased the demand for various types of banking services and wealth management products.

Pre-tax profit among the city’s retail banks increased by 62.1 per cent in aggregate last year, compared with 18.7 per cent in 2022 when Hong Kong’s business activities were still hobbled by anti-Covid controls, according to data provided by the Hong Kong Monetary Authority (HKMA).

“The banking industry in 2023 remained robust, boosted by a healthy capital adequacy ratio, strong profitability and good growth in deposits,” the HKMA’s deputy chief executive Arthur Yuen Kwok-hang said.

2023 marked the second year of growth for Hong Kong’s banks, after three straight years of compressed margins and slump, as the recession wrought by the Covid-19 pandemic and the anti-government protests of 2019 crimped demand for loans. Pre-tax profit fell 19.8 per cent in 2021, following a 29.4 per cent contraction in 2020 and a drop of 0.6 per cent in 2019.

HKMA Hong Kong Banking Centre Year-end Review with Arthur Yuen, Deputy Chief Executive, at HKMA in Central. Photo: Jonathan Wong

The banks’ net interest margin – the gap between the rate charged on loans and the interest paid for deposits – widened last year to the fattest in four years at 1.68 per cent, the HKMA’s data showed. The margin was 1.31 per cent in 2022 as the HKMA began its 525-basis point rate increase in March that year in lockstep with the Federal Reserve’s tightening monetary policy. The margin was 0.98 per cent in 2021 and 1.18 per cent in 2020.